Wrap Text
Group interim results for the period ended 30 September 2015
Telkom SA SOC Ltd
(Registration number 1991/005476/30)
JSE share code: TKG
ISIN: ZAE000044897
Group interim results
for the period ended 30 September 2015
Special note regarding forward-looking statements
Many of the statements included in this document, as well as verbal statements that may be made by us or by officers, directors or employees
acting on our behalf, constitute or are based on forward-looking statements.
All statements, other than statements of historical facts, including, among others, statements regarding our convergence and other strategies,
future financial position and plans, objectives, capital expenditures, projected costs and anticipated cost savings and financing plans, as well
as projected levels of growth in the communications market, are forward-looking statements. Forward-looking statements can generally be identified
by the use of terminology such as “may”, “will”, “should”, “expect”, “envisage”, “intend”, “plan”, “project”, “estimate”, “anticipate”, “believe”,
“hope”, “can”, “is designed to” or similar phrases, although the absence of such words does not necessarily mean that a statement is not forward
looking. These forward-looking statements involve a number of known and unknown risks, uncertainties and other factors that could cause our actual
results and outcomes to be materially different from historical results or from any future results expressed or implied by such forward-looking
statements. Factors that could cause our actual results or outcomes to differ materially from our expectations include but are not limited to
those risks identified in Telkom’s most recent annual report, which is available on Telkom’s website at www.telkom.co.za/ir.
We caution you not to place undue reliance on these forward-looking statements. All written and verbal forward-looking statements attributable to
us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Moreover, unless we are required by law to
update these statements, we will not necessarily update any of these statements after the date of this document, so that they conform either to
the actual results or to changes in our expectations.
The information contained in this document is also available on Telkom’s investor relations website www. telkom.co.za/ir.
Telkom SA SOC Limited is listed on the JSE Limited. Information may be accessed on Reuters under the symbol TKGJ.J and on Bloomberg under the
symbol TKG.SJ. Information contained on Reuters and Bloomberg is provided by a third party and is not incorporated by reference herein. Telkom has
not approved or verified such information and does not accept any liability for the accuracy of such information.
Auditors’ review report
Our auditors, Ernst & Young Inc. have reviewed the condensed consolidated interim financial statements. The unmodified review report is available
for inspection at the Group’s registered office.
Board approval
The condensed consolidated interim financial statements were authorised for issue by the Board of Directors of Telkom (Board) on 13 November 2015.
Preparation and supervisor of annual financial statements
These condensed consolidated interim financial statements were prepared by Mrs Gladys Machinjike (Executive Financial Accounting and Reporting)
and supervised by Mr Robin Coode (Group Executive Accounting).
Telkom is a leading communications services provider in South Africa, offering fixed line, mobile, ICT and data services to the business and
consumer markets.
We use the unique combination of our people, technology, networks and financial strength to create products and services, deliver customer
service, transform our cost base and invest in our future.
Our purpose
To seamlessly connect South Africans to a better life
The values that drive how we behave
- Continuous improvement
- Honesty
- Accountability
- Respect
- Teamwork
Our strategic objectives
- Leading provider of converged ICT solutions
- Customer first
- Building a sustainable business
Group salient features for the period ended 30 September 2015
All commentary, messaging and indicators in this report for the current period exclude voluntary early retirement and severance package costs of
R1 523 million and the related tax impact of R446 million. The comparative numbers also exclude voluntary early retirement and severance packages
of R325 million and the related tax impact of R91 million.
Achievements
- Group net revenue up 1.2% to R13.5 billion
- Mobile services and subscription revenue increased 40.5% to R1.2 billion
- Mobile data revenue increased 68.5% to R711 million
- EBITDA, excluding one-off items, improved 15.1% to R5.0 billion
- Headline earnings per share, excluding one-off items, increased 13.9% to 280.6 cents
- Operating expenses, excluding depreciation, decreased 2.3% to R9.0 billion
Challenges
- Managing the fixed-line voice usage revenue which decreased 14.1% to R3.1 billion
- Interconnection revenue decreased 17.9% to R598 million
- 25.8% decline in revenue from leased lines offset by higher capacity from Megalines and Metro Ethernet
Improvements
- ADSL subscribers increased 4.2% to 1 012 416
- Active mobile subscribers increased 11.5% to 2 257 404 with a blended ARPU of R89.05
- Ports activated via MSAN access increased 48.0% to 1 030 441
- Mobile sites integrated increased 3.1% to 2 549
- LTE sites integrated increased 8.3% to 1 381
Key indicators
R million September September %
2015 2014
Group net revenue 13 457 13 299 1.2
EBITDA 5 040 4 379 15.1
Cents/share September September %
2015 2014
BEPS 321.1 247.9 29.5
HEPS 280.6 246.4 13.9
Percentage September September %
2015 2014
Return on invested capital (annualised) 13.6 11.0 2.6
R million September September %
2015 2014
Free cash flow 1 445 1 785 (19.0)
Thousand September September %
2015 2014
ADSL subscribers 1 012 971 4.2
R million September September %
2015 2014
Mobile service and subscription revenue 1 166 830 40.5
R million September September %
2015 2014
Mobile EBITDA loss 37 385 (90.4)
Thousands September September %
2015 2014
Revenue generating mobile subscribers 2 257 2 024 11.5
Overview
Johannesburg, South Africa – 16 November 2015, Telkom SA SOC Limited (JSE: TKG) today announced group interim results for the six month period
ended 30 September 2015.
Message from Telkom Group CEO Sipho Maseko
During the first six months of the 2016 financial year we continued with our efforts to transform Telkom and stabilise revenue, while at the same
time addressing the fixed and inefficient nature of our operating cost base. The challenges we faced during the period included increasing
competition and a soft economy.
Financial capital
Despite these challenges we were able to continue to stabilise our net revenue and achieve growth of 1.2 percent year-on-year. Continuing growth
in our mobile business resulted in a service and subscription revenue increase of 40.5 percent year-on-year. This included excellent growth in
mobile data revenue of 68.5 percent. The decline in fixed-line usage continues with fixed voice revenue decreasing by 2.8 percent year-on year and
data connectivity showing a year-on-year decrease of 5.1 percent once again impacted by the self-provisioning of infrastructure by our competitors
and the intentional migration of customers from leased lines to next generation service offerings. Excluding revenue from leased lines fixed data
revenue is up by 4.1 percent. We also achieved good growth in our consumer business with revenue from ADSL growing 5.5 percent.
Our debt levels increased during the period as a result of significant cash outflows and an increase in capital expenditure. The cash outflows
included the:
- purchase of Business Connexion Group (BCX) for R2.7 billion;
- payment of a R1.3 billion dividend;
- repayment of our maturing TL 15 bond of R1.16 billion; and
- payment of voluntary early retirement and severance packages of R1.5 billion.
Despite these significant cash outflows our current net debt to EBITDA ratio is 0.4:1 and our gearing remains low, with a comfortable maturity
profile.
The increase in our capital expenditure to R2 335 million, which is an increase of 20.4% year-on-year, is driven by our strategic objective of
becoming a leading provider of converged solutions. This objective requires that we expand our mobile network and accelerate the building of our
next generation network (NGN) by rapidly increasing our fibre and LTE footprints. We have intensified the funding for fibre to the home to
maintain our competitive advantage and retain our existing customers.
The introduction of new technology and the acceleration of our fibre to the home initiative has affected the value of certain assets, which have
been identified for decommissioning and reassessment of their useful lives. This has resulted in accelerated depreciation to the value of
R97 million, which has affected our operating profit.
The progress we made towards transforming our future cost base by achieving a reduction in our workforce has resulted in a normalised employee
cost decrease of R351 million, or 7.5 percent when compared to the comparative period.
The early termination of our head office lease, which is aligned with our aim of strengthening our balance sheet, extinguished a lease liability
of R590 million. The move of our head office activities to our new campus in Centurion, which has been successfully completed, is another
initiative intended to ensure the extraction of cost and operational efficiencies across our business.
Operating costs
Operating costs decreased by 2.3 percent
year-on-year, however were significantly affected by:
- the financial impact of the delay in our transformation initiatives emanating from the interdict against our Section 189 workforce
restructuring process;
- a contractual dispute arising from the transition of our vehicle lease supply contract from the existing supplier to a new supplier; and
- unforeseen significant weakening in foreign exchange rates.
Productive capital
In line with optimising our operating model, we launched Openserve, our redesigned wholesale and networks division. Openserve is a distinct
business unit within the Telkom group, which was formed as part of the company’s ongoing efforts to strengthen our customer focus through a more
flexible and agile operating model. In September 2015, we announced our objective, through Openserve, to provide one million homes with access to
Telkom fibre by 2018.
We are rolling out the biggest fibre open access suburb to date in Bryanston, Johannesburg, where more than 12 000 homes will have access to fibre
technology by March 2016. During the period under review, we also announced we would be rolling out fibre in multiple additional suburbs in
Johannesburg, Pretoria, Cape Town, Durban, Bloemfontein, Kimberley and Port Elizabeth. Telkom has been reducing wholesale prices to reduce the
cost to communicate and has launched a 1Mbps DSL service to bring down the barriers to broadband access. We also previously stated that we will
open copper access at 200 exchanges on a trial basis, thus effectively paving the way for a more open access approach, depending on the outcome
of the trial.
In addition to achieving excellent growth in our mobile business and in particular in mobile data usage during this period, we also achieved good
growth in our ADSL revenue supported by a 4.2 percent increase in our ADSL subscribers. Our new summer campaign was launched in September 2015 and
we continue to drive convergence products and pricing in generous data bundles which have assisted us in improving our monthly sales.
Our efforts to migrate customers off legacy services to bundled, converged and next generation services is showing early signs of success, which
is reflected in the growth in subscriptions, Metro Ethernet and Megaline services. This growth is not yet sufficient to offset the decline in our
traditional revenue streams, mainly due to the lower pricing and smaller margins required to remain competitive given the aggressive pricing of
our competitors.
Telkom acquired the entire issued share capital of Business Connexion Group (BCX). The comprehensive post-merger integration plan was developed,
validated and is currently being implemented. BCX will focus on growing market leadership in integrated IT solutions, through vertical industry
insights and client-relevant value-added offerings, specifically within the Enterprise customer space. Within the SMB segment, the focus is on
cross-selling tiered and fit-for-purpose IT solutions to an established Telkom customer base.
Human capital
We are in the process of finalising our operating model with three separate strategic business units:
Consumer, Enterprise and Openserve in order to further transform the business. Our workforce must be aligned to the new operating model.
During the period under review we have approved voluntary severance and retirement packages to 3 108 employees.
While it is essential that we realign our workforce and work more efficiently if we are to successfully reduce our cost base, it is also essential
that we retain talent and attract new talent, especially scarce and business critical skills. We also need a friendly, reliable and competent team
focused on providing our customers with the best possible service. Our efforts to right size our workforce have, of course, not been conducive to
building a strong brand internally. The move to our new campus has provided us with an opportunity to reconnect with our employees. The campus
offers our employees a modern environment with a variety of spaces where they can interact with one another. The next phase in managing our human
capital will be to ensure that we have the correct culture, skills, processes and systems to enable Telkom to thrive.
Telkom reduced its incident frequency rate (number of incidents per 100 employees calculated over a specified period of time) from 1.97 to 1.67
during the period under review.
Intellectual capital
We are continuing to invest and transform our technology platforms and systems in order to support our aspirational business operating models for
Openserve and Consumer/Enterprise. We have implemented the first release of the new integrated OSS/BSS system stack for fixed and mobile. This
will add enhanced credit vetting and credit management functionality for Mobile Business and Consumer products and services; number management
functionality for mobile products and services; and enhanced ePortal capabilities for mobile products and services among other capabilities.
We are also consolidating multiple system interfaces with a single front-end system for identifying and resolving service requirements and
requests for customers, as well as the automation of common workflow tasks performed by our customer service agents.
These technology projects are not only aimed at ensuring that we offer our customers truly integrated products and services, but will also support
us in delivering a superior customer experience by putting our customers first.
Social and Relationship capital
Our enterprise and supplier development programme, FutureMakers, is adding value to SMEs while at the same time broadening Telkom’s customer base
and increasing our sales. Since its inception in May 2015, FutureMakers has received and screened over 300 applications for funding. FutureMakers
is directly engaged in supporting 134 black-owned SMEs, all of which are active in the ICT sector, through access to finance, innovation hubs and
business development services. To achieve its goals, FutureMakers is also creating and supporting third party distributors.
Natural capital
Telkom is committed to minimising any possible negative impact it may have on the environment in which it operates, and to reducing our water and
energy intensity. We are implementing a new water management system at Telkom Park, which will allow us to accurately measure our water usage by
year-end. We have achieved a reduction of over 8 percent in our electricity consumption over the past three years through energy efficient
lighting and air-conditioning control programmes. To reduce our reliance on Eskom power we are constructing an energy centre at our new head
office in Centurion, which includes a 3MWp solar plant and a 3MW tri-generation plant. The centre will reduce our carbon emissions by an estimated
15 377 tonnes per year, which is the equivalent of the annual emissions of 1 742 households.
Outlook
The challenges of intense competition, the soft economy and the fixed and inefficient nature of our operating cost base will remain with us for
H2 2016. As a result, the ongoing transformation of our business from both a revenue and cost perspective remains our key focus.
The difficult economic environment does not deter us from looking at innovative ways to bring more value-added services to our customers. In this
regard, we have already partnered with Old Mutual to offer our pre-paid customers loyalty funeral cover valued at R10 000 at no additional cost to
the consumer. We will continue to seek ways to remain true to our commitment to not only give our customer value, but also to ensure that our
customer experience remains a priority for all of us at Telkom.
The non-approval of our RAN sharing agreement with MTN by the competition authorities was a disappointment. We are very pleased with the improved
performance of our mobile business. As previously indicated we will continue to consider organic and inorganic initiatives to enhance and further
improve the performance to our mobile business. As always with all our investments we will take a disciplined approach.
To this end, we have announced that we are considering a potential transaction to acquire all of the shares of Cell C (Pty) Ltd. We are currently
performing due diligence on Cell C, and will update shareholders as the process progresses. We are confident that our mobile business will
achieve breakeven on EBITDA by year end.
We also expect our acquisition of BCX to be a key enabler of future revenue growth that will provide us with additional revenue opportunities.
Group chief executive officer
Sipho Maseko
Report structure
Telkom acquired the entire issued share capital of BCX and included its results in the group results from 1 September 2015 accordingly.
Since the acquisition of BCX, the group consists of two reportable segments, namely Telkom and BCX.
The Telkom segment provides fixed-line access and data communication services through Telkom South Africa, and the mobile business, which offers
mobile voice services, data services and handset sales through Telkom Mobile.
The BCX segment provides information and communication services including cloud services, infrastructure services, workspace services, global
service integration management and hardware and network equipment sales locally, in seven African countries, the UK and Dubai.
The group announced its aspiration to implement a more flexible and agile operating model and launched Openserve on 13 October 2015 which will
require a reassessment of segment reporting as progress is made in implementing the new operating and reporting model to manage performance.
Results from continuing operations
Shareholders are referred to the announcement of our annual results released on 8 June 2015 wherein we provided financial guidance for the year
ending 31 March 2016 and informed shareholders that the board approved the disposal of Telkom’s 64.9 percent shareholding in Trudon.
The pre conditions of the proposed sale of our stake in Trudon were not met and therefore Trudon will no longer be classified as a
discontinued operation and has been consolidated into the results from continuing operations for this period.
The comparative information for September 2014 and March 2015 has been restated as a result of a prior year adjustment relating to the
reassessment of the accounting treatment of the Telkom Retirement Fund (TRF). This reassessment relates to the classification of the TRF as either
a defined contribution or a defined benefit plan. Although Telkom is not exposed to asset returns during the working lives of employees, the rules
of the TRF provide that employees who were appointed prior to 1 September 2009 can retire from the defined contribution plan of the TRF with an
option to receive a pension from the defined benefit plan of the TRF. Should a retiree elect to retire into the pensioner pool of the TRF and
receive a pension from the defined benefit fund, the employer is thereafter exposed to longevity and the other actuarial risk from the date of
retirement onwards. The reassessment arose from the voluntary early retirement process concluded in August 2015 which highlighted the impact of
the option available to employees. The pension is calculated based on the defined contribution member share at retirement. This change in
classification and measurement impacted on the statement of financial position, the statement of profit and loss and other comprehensive income as
we recognised an IAS 19 non-current employee related provision which will incur interest costs, included in employee expenses. Further the SAICA
exposure draft on the application of IAS 19 provided additional guidance on the actuarial assumptions that were required to be used in the
measurement of this liability. The classification necessitated a restatement of opening retained earnings at 1 April 2014. At 30 September 2015
the accounting obligation balance is R1 652 billion. This provision is not expected to represent an outflow of cash.
The actuarially determined statutory valuation of the liability and funding position of the pensioner account in terms of the requirements of the
Financial Services Board and the Pension Funds Act differs materially from the liability recognised in terms of IFRS.
Actuaries have confirmed that the TRF is in a sound financial position as at the statutory valuation date in terms of section 16 of the Pension
Funds Act, as amended. As at the latest statutory valuation date there was a surplus of R536 million in the pensioners fund (after taking into
account the solvency reserve of R2.3 billion).
The group recorded a reported profit after tax of R606 million (September 2014: R1.1 billion). This is 43.8 percent lower than the previous period
and was mainly as a result of voluntary early retirement and severance package costs of R1 523 million for 3 108 employees in the current period
and R325 million in the comparative period for 406 employees.
The one-off items above are not part of the results from normal operations for the period under review and have therefore also been excluded from
the discussion below.
The group recorded a normalised profit after tax of R1 683 million (September 2014: R1 312 million) and EBITDA of R5 040 million (September 2014:
R4 379 million), resulting in a 13.9 percent increase in headline earnings per share. The increase was driven by the benefit from lower employee
expenses due to a lower headcount. This was partly offset by lower gains on foreign exchange and fair value movements as a result of the lower
gains recognised on the underlying assets held by the cell captive and a higher income tax.
Our mobile business continued its growth trajectory representing a 43.8 percent revenue growth year-on-year. We saw a pleasing growth of
40.5 percent year -on-year in our service and subscriptions revenue line (excluding equipment sales) with good cost discipline leading to a
90.4 percent improvement of our Mobile EBITDA loss.
We still face significant challenges with the decline in voice usage revenue accelerating, a reduction in leased lines, our pricing being
significantly eroded by competitive offerings and a concerted effort by our competitors to gain market share by directly approaching our customer
base with fibre offerings and aggressive pricing propositions as well as building their own infrastructure. We did however, manage to stabilise
our net revenue with growth of 1.2 percent despite the challenges set out above.
We managed to reduce operating costs by 2.3 percent. This reduction was largely driven by lower employee expenses and effective property
management costs. Increased maintenance, transformation cost and vehicle and site lease cost partly offset these savings.
We have seen a decline in the group’s cash balances to R623 million from R4.7 billion as at 31 March 2015. Our strong cash flow was impacted by
the payment of the declared dividend and voluntary early retirement and severance costs. Furthermore, we financed the purchase of BCX from the
cash we had available.
Financial guidance
The conclusion of the acquisition of the entire share capital of BCX and the termination of negotiations to sell our 64.9% shareholding in Trudon
due to certain pre conditions not being met, have required us to review and revise our financial guidance for the year ending 31 March 2016.
The revised guidance provided below includes the financial performance of Trudon for the full financial year and BCX for the seven months since
acquisition. The only change in guidance is the EBITDA margin from 26%-27% to 24%-26% due to the inclusion of BCX.
F2016
Net revenue Stabilise
EBITDA margin 24%-26%
Capex to revenue 15%-18%
Net debt to EBITDA <_1
Mobile EBITDA During the year
The financial guidance above has not been reviewed or reported on by our auditors.
Operational data September September %
2015 2014
ADSL subscribers1 1 012 416 971 319 4.2
Closer subscribers 839 158 859 622 (2.4)
Internet all access subscribers2 568 553 558 902 1.7
Fixed access lines (’000)3 3 323 3 531 (5.9)
Post-paid 2 273 2 346 (3.1)
Post-paid – ISDN channels 678 719 (5.7)
Pre-paid 328 405 (19.0)
Payphones 44 61 (27.9)
Ports activated via MSAN access 1 030 441 696 392 48.0
Fixed-line penetration rate (%)4 6.2 6.8 (0.6)
Revenue per fixed access line (ZAR) 2 285 2 256 1.3
Total fixed-line traffic (millions of minutes) 7 666 8 444 (9.2)
Managed data network sites 47 502 47 594 (0.2)
Telkom Company employees5 14 212 18 796 (24.4)
Trudon employees 463 475 (2.5)
Swiftnet employees 112 113 (0.9)
BCX employees 6 722 - -
Fixed access lines per employee5 234 188 24.5
Active mobile subscribers6 2 257 404 2 024 495 11.5
Pre-paid 1 576 471 1 595 130 (1.2)
Post-paid 680 933 429 365 58.6
Mobile base stations constructed 2 643 2 595 1.8
Mobile sites integrated 2 549 2 473 3.1
LTE sites integrated 1 381 1 275 8.3
ARPU (Rand) 89.05 71.99 23.7
Pre-paid 51.06 37.42 36.5
Post-paid 181.32 206.26 (12.1)
Churn %-pre-paid 59.0 44.4 (14.6)
1. Includes 8 341 (September 2014: 6 273) internal lines. ADSL subscribers includes business, consumer, corporate, government and wholesale
customers.
2. Includes Telkom Internet ADSL, ISDN and WiMAX subscribers.
3. Excludes Telkom internal lines.
4. Penetration rate is based on the 2011 Census population statistics.
5. Based on number of Telkom Company employees, excluding subsidiaries.
6. Based on a subscriber who has participated in a revenue-generating activity within the last 90 days.
Group operating revenue September September %
In ZAR millions 2015 2014
Voice and subscriptions 7 686 7 847 (2.1)
Fixed-line usage 3 079 3 584 (14.1)
Fixed-line subscriptions 4 207 3 915 7.5
Mobile voice and subscriptions 400 348 14.9
Interconnection 598 728 (17.9)
Fixed-line domestic 226 225 0.4
Fixed-line international 317 443 (28.4)
Mobile interconnection 55 60 (8.3)
Data 5 723 5 448 5.0
Data connectivity 3 309 3 485 (5.1)
Internet access and related services 980 884 10.9
Managed data network services 538 507 6.1
Multi-media services 24 23 4.4
Mobile data 711 422 68.5
IT Business Services revenue 161 127 26.8
Customer premises equipment sales and rentals 1 480 1 140 29.8
Sales 150 112 33.9
Rentals 433 423 2.4
Mobile handset and equipment sales 897 605 48.3
Other 260 174 49.4
Business Connexion 489 - -
Trudon 498 528 (5.7)
Swiftnet 48 46 4.4
Total 16 782 15 911 5.5
Group operating revenue increased 5.5 percent to R16 782 million (September 2014: R15 911 million), driven by higher mobile data revenue, higher
fixed-line subscription revenue and higher equipment sales. This was partly offset by the continuous decline in fixed-line voice revenue and lower
data connectivity revenue. Data connectivity revenue remains impacted by lower leased line revenue partly offset by growth in next generation
products and services. This growth is not yet sufficient to offset the declines in the traditional revenue streams due to lower pricing and
margins.
Fixed-line voice usage revenue decreased by 14.1 percent to R3 079 million (September 2014: R3 584 million) driven by competition, our migration
of voice customers to bundled and annuity products and a 5.9 percent decline in the number of lines.
Fixed-line subscriptions revenue grew 7.5 percent to R4 207 million (September 2014: R3 915 million) as a result of customers migrating to bundled
offerings and average line rental tariff increases of around 13 percent for business and residential customers.
Mobile voice and subscriber revenue increased 14.9 percent to R400 million (September 2014: R348 million). This can be attributed to a
58.6 percent increase in the number of post-paid subscribers and a 23.7 percent increase in blended ARPU.
Interconnection revenue decreased 17.9 percent to R598 million (September 2014: R728 million) as a result of interconnect traffic lost due to
better pricing by competitors. We have regained lost traffic in the latter part of the period under review.
Revenue from data connectivity services decreased 5.1 percent to R3 309 million (September 2014: R3 485 million), caused by a decline in revenue
from leased lines. The decrease is partly offset by growth in Metro Ethernet and Megaline services as a result of migration and an increase in
ADSL revenue driven by a 4.2 percent increase in ADSL subscribers to 1 012 416 (September 2014: 971 316).
Higher growth of 10.9 percent in Internet access and related services revenue to R980 million (September 2014: R884 million) was supported by a
1.7 percent increase in Internet subscribers and customers migrating to enhanced packages.
Managed data network services revenue increased 6.1 percent to R538 million (September 2014: R507 million) due to the sale of increased bandwidth
capacity to key customers.
Mobile data revenue increased 68.5 percent to R711 million (September 2014: R422 million) driven by our strategy to focus on data which led to a
49.4 percent increase in data users to 1.6 million.
IT Business Services data revenue increased 26.8 percent to R161 million (September 2014: R127 million) attributable to new products introduced
and the ongoing drive to improve revenue streams such as Basic hosting, Hosted exchanges, LAN Element Management and Office in a box.
Customer premises equipment sales increased 29.8 percent to R1 480 million (September 2014: R1 140 million) mainly due to increased mobile handset
and equipment sales.
Group other income September September %
In ZAR millions 2015 2014
Telkom 544 254 114.2
Business Connexion 5 - -
Trudon 15 17 (11.8)
Swiftnet 1 1 -
Total 565 272 107.6
Other income includes profit on the disposal of investments, property, plant and equipment, interest received from debtors and sundry income.
Other income increased 107.6 percent to R565 million (September 2014: R272 million) mainly as a result of higher profit on sale of properties.
Group direct expenses September September %
In ZAR millions 2015 2014
Payments to other operators 1 396 1 446 3.5
Direct cost 396 261 (51.7)
Cost of sales 1 533 905 (69.4)
Total 3 325 2 612 (27.3)
Telkom direct expenses September September %
In ZAR millions 2015 2014
Payments to other operators 1 383 1 435 3.6
Mobile network operators 764 675 (13.2)
International network operators 319 429 25.6
Fixed-line network operators 138 179 22.9
Data commitments 162 152 (6.6)
Direct cost 396 261 (51.7)
Cost of sales 944 728 (29.7)
Total 2 723 2 424 (12.3)
Payments to mobile operators increased 13.2 percent mainly attributable to higher roaming expenses.
Payments to international operators decreased 25.6 percent as a result of interconnect traffic lost due to better pricing by competitors. We
regained lost traffic in the latter part of the period under review.
Higher direct cost is driven by more subscribers connected which resulted in higher discounts paid for incentives to dealers.
The 29.7 percent increase in cost of sales is largely attributable to the increase in the cost of mobile device sales.
Group operating expenses September September %
In ZAR millions 2015 2014
Employee expenses1 4 310 4 661 7.5
Selling, general and administrative expenses 2 530 2 431 (4.1)
Service fees 1 523 1 596 4.6
Operating leases 619 504 (22.8)
Operating expenses excluding depreciation, 8 982 9 192 2.3
amortisation, impairments and write-offs
Depreciation, amortisation, impairments and 2 615 2 489 (5.1)
write-offs
Total 11 597 11 681 0.7
Reclassification of comparative information
1. In order to achieve a more relevant presentation a decision was made to reclassify items to the amount of R90 million from employee expenses to
selling, general and administrative expenses.
Group operating expenses including depreciation, amortisation, impairments and write-offs decreased by 0.7 percent to R11 597 million (September
2014: R11 681 million) for the six month period ended 30 September 2015. The decrease is primarily due to lower employee expenses and effective
property management cost offset by higher accelerated depreciation, maintenance, transformation cost and operating lease cost.
Telkom operating expenditure
In ZAR millions September September %
2015 2014
Employee expenses 4 162 4 599 9.5
Salaries and wages 3 308 3 674 10.0
Benefits 1 059 1 141 7.2
Employee related expenses capitalised (205) (216) 5.1
Selling, general and administrative expenses 2 497 2 337 (6.9)
Materials and maintenance1 1 599 1 485 (7.7)
Marketing 323 322 (0.3)
Bad debts 144 103 (39.8)
Other1 431 427 (0.9)
Service fees 1 494 1 591 6.1
Property management 849 942 9.9
Consultants, security and other 645 649 0.6
Operating leases 578 479 (20.7)
Buildings 264 229 (15.3)
Equipment 27 19 (42.1)
Vehicles 287 231 (24.2)
Depreciation, amortisation, impairments and write-offs 2 559 2 458 (4.1)
Depreciation 2 148 2 092 (2.7)
Amortisation 381 323 (18.0)
Impairment and write-offs 30 43 30.2
Total 11 290 11 464 1.5
Reclassification of comparative information
1. Copper theft losses of R70 million has been re classified from materials and maintenance to the other category for more relevant disclosure.
Employee expenses were 9.5 percent lower due a lower headcount resulting from voluntary severance and retirement packages in the previous
period. The headcount decreased 24.4 percent to 14 212 full-time employees. This was offset by a 6.6 percent average salary increase for
bargaining unit employees and a 6.1 percent average salary increase for management employees.
Selling, general and administrative expenses increased 6.9 percent to R2 497 million (September 2014: R2 337 million) mainly due to cost relating
to the outsourcing of our call centres and increased bad debts as we made provision based on the adverse economic conditions affecting payment
patterns.
Service fees decreased 6.1 percent to R1 494 million (September 2014: R1 591 million) largely due to effective property management partly offset
by an increase in costs incurred relating to the company’s transformation programme.
The 24.2 percent increase in vehicle leases was mainly attributed to contractual disputes arising during the transition of our vehicle lease
supply contract.
Building leases increased 15.3 percent to R264 million (September 2014: R229 million) as a result of an increase in the site lease cost on mobile
masts.
Depreciation increased 4.1 percent to R2 559 million (September 2014: R2 458 million) due to higher accelerated depreciation as we intensify our
rollout of fibre and LTE as new technologies.
Mobile operating expenditure
Details of Telkom Mobile operating expenditure are provided below.
Mobile operating expenditure
In ZAR millions September September %
2015 2014
Payments to other operators 344 224 (53.6)
Direct cost 289 211 (37.0)
Cost of sales 729 542 (34.5)
Employee expenses 150 192 21.9
Selling, general and administrative expenses 398 471 15.5
Service fees 46 55 16.4
Operating leases 148 128 (15.6)
Depreciation, amortisation, impairments and write-offs 376 308 (22.1)
Total 2 480 2 131 (16.4)
Investment income
Investment income consists of interest received on short-term investments and bank accounts. Investment income decreased by 8.7 percent to
R116 million (September 2014: R127 million) as a result of lower cash balances held by the group.
Finance charges and fair value movements
Finance charges include interest paid on local and foreign borrowings, amortised discounts on bonds and commercial paper bills, fair value gains
and losses on financial instruments and the cell captive as well as foreign exchange gains and losses on foreign currency denominated transactions
and balances.
Foreign exchange and fair value movements decreased 257.6 percent to a loss of R93 million (September 2014: gain of R59 million). This decrease
was attributable to a fair value loss (prior year was a gain) on revaluation of the underlying assets held by the cell captive. The interest
expense decreased 15.7 percent to R241 million (September 2014: R286 million) as a result of lower debt levels.
Taxation
The normalised consolidated tax expense increased by 9,8 percent to R525 million (September 2014: R478 million) and excludes the R446 million
(September 2014: R91 million) tax benefit on the voluntary severance and retrenchment expenses.
The reported consolidated tax expense decreased by 79,8 percent to R78 million (September 2014: R387 million) mainly as a result of a lower income
tax charge which was primarily as a result of a decrease in profit before tax. The tax charge was based on an estimated average annual effective
income tax rate, which is in compliance with accounting standards.
Consolidated statement of financial position
The group’s capital structure remains strong. Net debt, including financial assets and liabilities, increased to R4 011 million from R545 million
as at 30 September 2014, resulting in a net debt to EBITDA ratio of 0.4 times. On 30 September 2015, the group had cash balances, including other
financial assets and liabilities, of R623 million (30 September 2014: R4 409 million). The lower cash balances emanate from significant cash
outflows experienced in the first six months of the financial year including the cash payment for BCX, dividend payment and voluntary and
retirement severance package costs. Despite the significant cash outflows our gearing remains low with a comfortable maturity profile.
Free cash flow September September %
In ZAR millions 2015 2014
Cash generated from operations before
dividends paid 2 029 3 469 (41.5)
Add back: Package cost paid 1 464 86 (1 602.3)
Adjusted cash generated from operations 3 493 3 555 1.7
Cash paid for capital expenditure (2 048) (1 770) (14.9)
Free cash flow 1 445 1 785 (19.0)
Free cash flow decreased 19.0 percent to R1 445 million (September 2014: R1 785 million).
Group capital expenditure
Our capital expenditure programme is aligned to our strategy to build our next generation network and grow mobile and converged service offerings.
Group capital expenditure, which includes spend on intangible assets, increased 20.4 percent to R2 335 million (September 2014: R1 939 million)
and represents 13.9 percent of group operating revenue (September 2014: 12.2 percent).
Group capital expenditure September September %
In ZAR millions 2015 2014
Baseline 994 864 15.0
Network evolution 507 576 (12.0)
Mobile 200 164 22.0
Sustenance 119 76 56.6
Effectiveness and efficiency 229 48 377.1
Support 31 39 (20.5)
Other 2 3 (33.3)
BCX 36 - -
Trudon 42 39 7.7
Swiftnet 8 6 33.3
Capital expenditure included in PPE 2 168 1 815 19.4
Capital inventory 167 124 34.7
Total 2 335 1 939 20.4
Baseline capital expenditure of R994 million (September 2014: R864 million) consists largely of the deployment of technologies to support the
growing data services business, Internet capacity growth, connectivity to the mobile cellular operators and access line deployment in selected
high-growth commercial and business areas.
Network evolution expenditure of R507 million (September 2014: R576 million) is related to the continued rollout of the next generation network
programme which aims to modernise the legacy voice network, provide high-speed broadband in selected areas and to address the associated
operational and business support systems. The lower expenditure is largely due to a more rigorous focus on project selection, in accordance with
the group’s focus on efficient execution of its strategy. Our rollout was also impacted by civil work required to install fibre to the home and
business.
Mobile capital expenditure increased 22.0 percent to R200 million (September 2014: R164 million), due to the shift to a more concentrated rollout
in major metropolitan areas. The current focus on the radio access network (RAN) is to complete existing projects, deploy LTE in selected areas
and to provide capacity to relieve congestion in identified growth areas.
The sustenance category expenditure of R119 million (September 2014: R76 million) was largely linked to the replacement of obsolete power systems
as well as the replacement and modernisation of the access and core network. The increase is due to a focus on access network rehabilitation,
mainly to improve the customer experience for voice and ADSL services.
The increase in the effectiveness and efficiency category to R229 million (September 2014: R48 million) resulted from a number of projects,
including the relocation of the Telkom head office to Centurion, a contact centre consolidation initiative and the replacement of electric
lighting with lower energy LED lights.
The support capital expenditure of R31 million (September 2014: R39 million) is primarily related to the provision of new buildings and building
extensions in support of network growth, building compliance upgrades and the purchase of test equipment for technical staff.
Condensed consolidated interim financial statements
Condensed consolidated interim statement of profit or loss and other comprehensive income
for the six months ended 30 September 2015
Reviewed Restated* Restated*
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Notes Rm Rm Rm
Continuing operations
Total revenue 4 17 181 16 257 33 527
Operating revenue 4 16 782 15 911 32 760
Payments to other operators 5.1 1 396 1 446 2 930
Cost of sales 5.2 1 929 1 166 3 249
Net operating revenue 13 457 13 299 26 581
Other income 4 565 272 731
Operating expenses 13 120 12 006 23 976
Employee expenses 5.3 5 833 4 986 9 462
Selling, general and administrative expenses 5.4 2 530 2 431 4 755
Service fees 5.5 1 523 1 596 3 219
Operating leases 5.6 619 504 1 035
Depreciation, amortisation, impairment,
write-offs and losses 5.7 2 615 2 489 5 505
Operating profit 902 1 565 3 336
Investment income 4 116 127 293
Finance charges and fair value movements 334 227 473
Finance charges 241 286 562
Net loss/(gain) on foreign exchange and fair
value movements 93 (59) (89)
Profit before taxation 684 1 465 3 156
Taxation expense/(income) 6 78 387 (52)
Profit for the period 606 1 078 3 208
Other comprehensive income
Items that will not be reclassified to profit or loss
Defined benefit plan actuarial losses (262) (2 365) (1 628)
Defined benefit plan asset ceiling limitation 15 15 (6)
Income tax relating to components of other comprehensive loss 7 (35) 132 133
Other comprehensive loss for the period, net of taxation (282) (2 218) (1 501)
Total comprehensive income/(loss) for the period 324 (1 140) 1 707
Profit attributable to:
Owners of Telkom 564 1 032 3 103
Non-controlling interests 42 46 105
Profit for the period 606 1 078 3 208
Total comprehensive income/(loss) attributable to:
Owners of Telkom 282 (1 186) 1 602
Non-controlling interests 42 46 105
Total comprehensive income/(loss) for the period 324 (1 140) 1 707
Total operations
Basic earnings per share (cents) 8 110.4 202.1 607.7
Diluted earnings per share (cents) 8 108.4 198.7 595.3
*Refer to notes 2.1, 5.4 & 5.5.
Condensed consolidated interim statement of financial position
at 30 September 2015
Reviewed Restated* Restated*
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Notes Rm Rm Rm
Assets
Non-current assets 32 460 30 466 30 855
Property, plant and equipment 10 24 473 24 493 24 479
Intangible assets 10 4 577 2 779 2 982
Other investments 2 244 2 891 2 231
Employee benefits 11 431 38 452
Other financial assets 14 - 56 28
Finance lease receivables 348 193 413
Deferred taxation 12 387 16 270
Current assets 9 413 11 011 11 127
Inventories 13 912 738 638
Income tax receivable 42 27 11
Current portion of finance lease receivables 204 111 200
Trade and other receivables 7 316 5 589 5 388
Current portion of other financial assets 14 233 634 1 247
Cash and cash equivalents 16 706 3 912 3 643
Total assets 41 873 41 477 41 982
Equity and liabilities
Equity attributable to owners of the parent 23 476 21 540 24 398
Share capital 18 5 208 5 208 5 208
Treasury shares 19 - (771) -
Share-based compensation reserve 206 53 126
Non-distributable reserves 19 1 453 2 711 1 507
Retained earnings 16 609 14 339 17 557
Non-controlling interests 486 354 363
Total equity 23 962 21 894 24 761
Non-current liabilities 6 003 8 242 5 738
Interest-bearing debt 20 3 084 3 398 3 244
Employee-related provisions 21 2 061 3 872 1 730
Non-employee-related provisions 21 35 53 61
Deferred revenue 681 899 687
Deferred taxation 12 142 20 16
Current liabilities 11 908 11 341 11 483
Trade and other payables 22 6 509 5 114 5 635
Shareholders for dividend 21 20 19
Current portion of interest-bearing debt 20 1 550 1 612 1 612
Current portion of employee-related provisions 21 1 402 1 652 1 882
Current portion of non-employee-related provisions 21 243 434 303
Current portion of deferred revenue 1 535 1 511 1 502
Income tax payable 332 861 344
Current portion of other financial liabilities 310 131 185
Credit facilities utilised 16 6 6 1
Total liabilities 17 911 19 583 17 221
Total equity and liabilities 41 873 41 477 41 982
*Refer to note 2.2.
Condensed consolidated interim statement of changes in equity
for the six months ended 30 September 2015
Reviewed Restated Restated
Six months Six months
ended Year ended ended
30 September 31 March 30 September
2015 2015 2014
Rm Rm Rm
Balance at 1 April 24 761 23 148 23 148
Reassessment of the accounting for the
Telkom Retirement Fund* - (86) (86)
Restated balance at 1 April 24 761 23 062 23 062
Attributable to owners of Telkom 24 398 22 685 22 685
Non-controlling interests 363 377 377
Total comprehensive income for the period 324 1 707 (1 140)
Profit for the period 606 3 208 1 078
Other comprehensive income (282) (1 501) (2 218)
Net defined benefit plan remeasurements (282) (1 501) (2 218)
Adjustment to shares held in escrow - (4) -
Dividend declared** (1 336) (119) (70)
Tax effect on the Telkom share scheme 7
Acquisition of subsidiary with minorities
(refer to note 15) 126 - -
Increase in share-compensation reserve 80 115 42
Balance at end of period 23 962 24 761 21 894
Attributable to owners of Telkom 23 476 24 398 21 540
Non-controlling interests 486 363 354
*Refer to note 2.
**Dividend declared includes dividend to the non-controlling interests of the Trudon Group.
Condensed consolidated interim statement of cash flows
for the six months ended 30 September 2015
Reviewed Reviewed Restated*
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Notes Rm Rm Rm
Cash flows from operating activities 700 3 398 6 281
Cash receipts from customers 17 010 16 017 32 952
Cash paid to suppliers and employees (14 627) (12 437) (26 153)
Cash generated from operations 2 383 3 580 6 799
Interest received 245 216 502
Finance charges paid (437) (160) (493)
Taxation paid (162) (167) (406)
Cash generated from operations before dividend paid 2 029 3 469 6 402
Dividend paid (1 329) (71) (121)
Cash flows from investing activities (3 106) (2 218) (5 168)
Proceeds on disposal of property, plant and
equipment and intangible assets 96 52 253
Proceeds on disposal of investment - - 750
Additions to assets for capital expansion 10 (2 048) (1 770) (5 070)
Decrease/(increase) in repurchase
agreements 1 101 (500) (1 101)
Acquisition of subsidiary (BCX), net of cash 15 (2 255) - -
acquired
Cash flows from financing activities (538) 884 685
Loans raised 1 765 1 000 1 000
Loans repaid (2 044) (123) (310)
Finance lease capital repaid (414) (84) (170)
Proceeds from net derivatives 155 91 165
Net (decrease)/increase in cash and cash equivalents (2 944) 2 064 1 798
Net cash and cash equivalents at beginning of period 3 642 1 841 1 841
Effect of foreign exchange rate differences
on cash and cash equivalents 2 1 3
Net cash and cash equivalents at end of period 16 700 3 906 3 642
*Refer to note 2.3.
Notes to the condensed consolidated interim financial statements
for the six months ended 30 September 2015
1. Corporate information
Telkom SA SOC Limited (Telkom) is a company incorporated and domiciled in the Republic of South Africa (South Africa) whose shares are publicly
traded. The main objective of Telkom Group is to supply telecommunication, multimedia, technology, information and other related information
technology services to the group customers, as well as mobile communication services, in Africa.
2. Basis of preparation and accounting policies
Basis of preparation
The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and in compliance
with the Listings Requirements of the JSE Limited, the South African Companies Act, 2008, the SAICA Financial Reporting Guide as issued by the
Accounting Practices Committee and the Financial Reporting Standards Council.
The condensed consolidated interim financial statements are presented in South African rand, which is the group’s functional currency. All
financial information presented in rand has been rounded off to the nearest million.
The condensed consolidated interim financial statements are prepared on the historical cost basis, with the exception of certain financial
instruments initially (and sometimes subsequently) measured at fair value. The results of the interim period are not necessarily indicative of the
results for the entire year and these reviewed financial statements should be read in conjunction with the audited financial statements for the
year ended 31 March 2015.
The preparation of the condensed consolidated interim financial statements requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Although these estimates are based on management’s best knowledge of current events
and actions that the group may undertake in the future, actual results may differ from those estimates.
Significant accounting judgements, estimates and assumptions
In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the group’s
accounting policies and the key sources of estimation uncertainty were consistent with those applied to the consolidated financial statements for
the year ended 31 March 2015.
Significant accounting policies
The condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the group’s last
annual financial statements for the year ended 31 March 2015 with the exception of the accounting treatment of Telkom Retirement Fund.
The accounting policies have been applied consistently throughout the group for the purposes of preparation of these condensed consolidated
interim financial statements.
The group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Reassessment of the Telkom Retirement Fund Defined Benefit (DB) Members
During the current reporting period, the group reassessed the accounting treatment of the Telkom Retirement Fund (TRF). The rules of the fund
provide employees who were appointed prior to 1 September 2009 retiring from the defined contribution with an option to receive a pension from the
fund.
Should a retiree elect to receive the pension, the employer is thereafter exposed to longevity and other actuarial risk. However, the pension is
calculated based on the defined contribution plan assets available at the point of retirement. The classification rules within IAS 19 require
that, where the employer is exposed to any actuarial risk, the entire fund be classified as a defined benefit plan (DB). This change in
classification impacted on the statement of financial position, the statement of profit and loss and other comprehensive income. At 30 September
2015 the obligation balance is R1.652 billion.
It should, however, be noted that there is a difference between the IAS 19 valuation and the Fund actuaries’ valuation which reflects that the
assets of the TRF are sufficient to cover the TRF’s liabilities towards active members and pensioners. The TRF is in a sound financial condition
as at the valuation date in terms of section 16 of the Pension Funds Act, as amended. As at the latest statutory valuation date there was a
surplus of R536 million in the pensioners account per the statutory valuation(after taking into account the solvency reserve of R2.3 billion).
At 1 April 2014, non-current employee provisions increased by R86 million and retained earnings decreased by the same amount. Refer to tables 2.1
and 2.2 for the impact of the reassessment for the comparatives.
2.1 Adjustments to the consolidated statement of profit or loss and other comprehensive income
Year ended 31 March 2015 Six months ended 30 September 2014
Reclassification Reassessment Restated Reassessment Restated
of Trudon Group of Telkom of Telkom
as not held for Retirement Retirement
sale* Fund** Fund**
Rm Rm Rm Rm Rm
Continuing operations
Operating revenue 1 085 - 32 760 - 15 911
Payments to other operators - - 2 930 - 1 446
Cost of sales 462 - 3 249 - 1 166
Net operating revenue 623 - 26 581 - 13 299
Other income 32 - 731 - 272
Operating expenses 174 54 23 976 24 12 006
Employee expenses 54 54 9 462 24 4 986
Selling, general and administrative expenses 43 - 4 755 - 2 431
Service fees 7 - 3 219 - 1 596
Operating leases 43 - 1 035 - 504
Depreciation, amortisation, impairment, write-offs and losses 27 - 5 505 - 2 489
Operating profit 481 (54) 3 336 (24) 1 565
Investment income 10 - 293 - 127
Finance charges and fair value movements 2 - 473 - 227
Interest 2 - 562 - 286
Foreign exchange gains and fair value movements - - (89) - (59)
Profit before taxation 489 (54) 3 156 (24) 1 465
Taxation expenses/(income) 122 (6) (52) 54 387
Profit from continuing operations 367 (48) 3 208 (78) 1 078
Profit from discontinuing operations (367) - - - -
Profit for the period - (48) 3 208 (78) 1 078
Other comprehensive income
Items that will not be reclassified to profit or loss
Defined benefit plan actuarial losses - (684) (1 628) (1 059) (2 365)
Defined benefit plan asset ceiling limitation - (454) (6) (1 011) 15
Income tax relating to components of other comprehensive income - (6) 133 54 132
Other comprehensive loss for the period, net of taxation - (1 144) (1 501) (2 016) (2 218)
Total comprehensive income/(loss) for the period - (1 192) 1 707 (2 094) (1 140)
*Refer to note 9.
** Refer to significant accounting policies.
2.2 Adjustments to the consolidated statement of financial position
at 31 March 2015 at 30 September 2014
Reclassification Reassessment Restated Reassessment Restated
of Trudon Group of Telkom of Telkom
as not held for Retirement Retirement
sale* Fund** Fund**
Rm Rm Rm Rm Rm
Assets
Non-current assets 301 - 30 855 - 30 466
Property, plant and equipment 92 - 24 479 - 24 493
Intangible assets 189 - 2 982 - 2 779
Other investments - - 2 231 - 2 891
Employee benefits - - 452 - 38
Other financial assets - - 28 - 56
Finance lease receivables - - 413 - 193
Deferred taxation 20 - 270 - 16
Current assets 616 - 11 127 - 11 011
Inventories 86 - 638 - 738
Income tax receivable 10 - 11 - 27
Current portion of finance lease receivables - - 200 - 111
Trade and other receivables 493 - 5 388 - 5 589
Current portion of other financial assets - - 1 247 - 634
Cash and cash equivalents 27 - 3 643 - 3 912
Assets of disposal group classified as held for sale (917) - - - -
Total assets - - 41 982 - 41 477
Equity and liabilities
Equity attributable to owners of the parent - (1 192) 24 398 (2 094) 21 540
Share capital - - 5 208 - 5 208
Treasury shares - - - - (771)
Share-based compensation reserve - - 126 - 53
Non-distributable reserves - - 1 507 - 2 711
Retained earnings - (1 192) 17 557 (2 094) 14 339
Non-controlling interest - - 363 - 354
Total equity - (1 192) 24 761 (2 094) 21 894
Non-current liabilities 39 1 192 5 738 2 094 8 242
Interest-bearing debt - - 3 244 - 3 398
Employee-related provisions 15 1 192 1 730 2 094 3 872
Non-employee-related provisions 22 - 61 - 53
Deferred revenue - - 687 - 899
Deferred taxation 2 - 16 - 20
Current liabilities 80 - 11 483 - 11 341
Trade and other payables 64 - 5 635 - 5 114
Shareholders for dividend - - 19 - 20
Current portion of interest-bearing debt - - 1 612 - 1 612
Current portion of employee-related provisions 15 - 1 882 - 1 652
Current portion of non-employee-related provisions 1 - 303 - 434
Current portion of deferred revenue - - 1 502 - 1 511
Income tax payable - - 344 - 861
Current portion of other financial liabilities - - 185 - 131
Credit facilities utilised - - 1 - 6
Liabilities of disposal group classified as held for sale (119) - - - -
Total liabilities - 1 192 17 221 2 094 19 583
Total equity and liabilities - - 41 982 - 41 477
*Refer to note 9.
** Refer to significant accounting policies.
2.3 Adjustments to the statement of cash flows
for the year ended 31 March 2015
Reclassification Restated
of Trudon Group
as not held for
sale*
Rm Rm
Cash flows from operating activities 55 6 281
Cash receipts from customers 1 100 32 952
Cash paid to suppliers and employees (943) (26 153)
Cash generated from operations 157 6 799
Interest received 32 502
Finance charges paid (2) (493)
Taxation paid (132) (406)
Cash generated from operations before dividend paid 55 6 402
Dividend paid - (121)
Cash flows from investing activities (55) (5 168)
Proceeds on disposal of property, plant and equipment and intangible assets - 253
Proceeds on disposal of investment - 750
Additions for capital expansion (55) (5 070)
Increase in repurchase agreements - (1 101)
Cash flows from financing activities - 685
Loans raised - 1 000
Loans repaid - (310)
Finance lease capital repaid - (170)
Settlement of derivatives - 165
Net increase in cash and cash equivalents - 1 798
Net cash and cash equivalents at beginning of period - 1 841
Trudon cash and cash equivalents classified as held for sale 27 -
Effect of foreign exchange rate differences on cash and cash equivalents - 3
Net cash and cash equivalents at end of period 27 3 642
*Refer to note 9.
3. Segment information Reviewed Restated Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
The Telkom Group is organised into business units
based on products and services and has two
reportable segments, namely:
i) Telkom, which provides fixed-line access,
fixed-line usage, data communications services
(through Telkom and Cybernest), mobile voice
services and handset sales
ii) BCX, which provides business solutions based
on information and communication technology
and runs ICT systems and manages products,
services and solutions.
The executive committee assesses the performance
of the operating segments based on a measure of
operating profit.
The group announced its aspiration to implement a
more flexible and agile operating model and launched
Openserve on 13 October 2015 (refer note 26) which
will require a reassessment of segment reporting as
progress is made in implementing the new operating
and reporting model to manage performance.
Consolidated operating revenue 16 782 15 911 32 760
Telkom 16 292 15 911 32 760
BCX 491 - -
Elimination of intersegmental revenue (1)
Consolidated operating profit 902 1 565 3 336
Telkom 897 1 565 3 336
BCX 5 - -
Reconciliation of operating profit, profit before tax
Adjusted EBITDA for reportable segments 3 517 4 054 8 841
Depreciation, amortisation, impairment, write-offs and losses (2 615) (2 489) (5 505)
Operating profit 902 1 565 3 336
Investment income 116 127 293
Finance charges and fair value movements (334) (227) (473)
Profit before taxation 684 1 465 3 156
4. Total revenue Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Total revenue 17 181 16 257 33 527
Operating revenue 16 782 15 911 32 760
Other income* (excluding profit on disposal
of property, plant and equipment, intangible assets) 283 219 474
Investment income 116 127 293
Operating revenue increased due to the higher mobile data revenue, higher fixed-line subscription revenue, higher equipment sales and the
consolidation of BCX, partially offset by the continuous decline in fixed-line voice revenue and lower data connectivity revenue.
Other income increased due to the higher number of Telkom owned sites leased out to other operators.
*The profit on disposal of the excluded items is R282 million (30 September 2014: R53 million; 31 March 2015: R257 million).
5. Expenses Reviewed Restated Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
5.1 Payments to other operators
The decrease is as a result of lower traffic
carried for other operators. 1 396 1 446 2 930
5.2 Cost of sales
The increase in the cost of sales is largely 1 929 1 166 3 249
attributable to the inclusion of BCX and the
increase in the cost of mobile device sales.
5.3 Employee expenses
The increase in employee expenses is mainly 5 833 4 986 9 462
due to an expense of R1 523 million (September
2014: R325 million) relating to the voluntary
severance (VSP) and voluntary early retirement
(VERP) process as well as an average salary
increase of 6%. This was offset by lower
headcount emanating from the prior year VSP
and VERP process.
Change in 30 September 2014 comparative
Employee expenses decreased by R90 million
due to the reclassification of expenses to selling,
general and administrative. This was done to provide
more relevant disclosure. Refer to note 5.4.
5.4 Selling, general and administrative expenses 2 530 2 431 4 755
The increase in selling, general and administrative
expenses is mainly due to an increase in
maintenance costs.
Included in selling, general and administrative
expenses is a write-down of inventories to the
value of R51 million (30 September 2014:
R20 million; 31 March 2015: R72 million).
Change in 30 September 2014 comparative
In order to achieve a more relevant presentation
a decision was made to reclassify items from
employee expenses to selling, general and
administrative. Refer to note 5.3.
5.5 Service fees . 1 523 1 596 3 219
Effective management of property led to a
decrease in service fees, partially offset by an
increase in consultants, security and other service
fees
5.6 Operating leases 619 504 1 035
Operating leases increased as a result of an
upwards adjustment in site lease costs on mobile
masts, as well as a temporary increase in vehicle
lease costs due to the delayed implementation of
the new vehicle lease supply contract.
5.7 Depreciation, amortisation, impairment, 2 615 2 489 5 505
write-offs and losses
Depreciation of property, plant and equipment 2 172 2 108 4 506
Amortisation of intangible assets 412 339 779
Impairment of property, plant and equipment
and intangible assets - 19 -
Write-offs of property, plant and equipment
and intangible assets 31 23 220
The increase is due to higher accelerated depreciation and amortisation as Telkom aligns its asset base to technology evolution and initiatives
driving its strategic intent.
6. Taxation Reviewed Restated Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Taxation 78 387 (52)
South African normal company taxation 114 255 73
Deferred taxation (refer to note 12) (38) 132 (125)
Foreign tax 2 - -
The decrease in normal tax is mainly due to the
decrease in profits before tax.
In the financial year ended 31 March 2015 the group
raised a deferred tax asset of R250 million in
respect of Telkom Company.
7. Income taxation effects of other
comprehensive income Reviewed Restated Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Defined benefit plan actuarial losses (262) (2 365) (1 628)
Defined benefit plan asset ceiling limitation gains/(losses) 15 15 (6)
Other comprehensive loss for the year before taxation (247) (2 350) (1 634)
Tax effect of other comprehensive loss for the year (35) 132 133
Other comprehensive loss for the year, net of taxation (282) (2 218) (1 501)
8. Earnings per share Reviewed Restated Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Total operations
Basic earnings per share (cents) 110.4 202.1 607.7
Diluted earnings per share (cents) 108.4 198.7 595.3
Headline earnings per share (cents) 69.9 200.6 597.9
Diluted headline earnings per share (cents) 68.6 197.1 585.7
Reconciliation of weighted average number of
ordinary shares:
Ordinary shares in issue 526 948 700 520 783 900 520 783 900
Weighted average number of shares held by
subsidiaries and in escrow (refer to note 19) (15 933 358) (10 190 084) (10 190 084)
Weighted average number of shares outstanding 511 015 342 510 593 816 510 593 816
Reconciliation of diluted weighted average number
of ordinary shares:
Weighted average number of shares outstanding 511 015 342 510 593 816 510 593 816
Expected future vesting of shares 9 145 787 8 783 562 10 654 715
Diluted weighted average number of shares
outstanding 520 161 129 519 377 378 521 248 531
Total operations Rm Rm Rm
Reconciliation between earnings and headline
earnings:
Profit for the year 606 1 078 3 208
Non-controlling interests (42) (46) (105)
Profit attributable to equity holders of Telkom 564 1 032 3 103
Adjustments:
Profit on disposal of property, plant and
equipment and intangible assets (282) (53) (257)
Impairment loss on property, plant and
equipment and intangible assets - 19 -
Write-offs of property, plant and
equipment and intangible assets 31 23 220
Taxation effects 44 3 (13)
Headline earnings 357 1 024 3 053
Dividend per share (cents) 245.0 - -
The calculation of dividend per share is based on dividends of R1 291 million declared on 5 June 2015 and 526 948 700 number of ordinary shares
outstanding on the date of dividend declaration. The dividend paid is made up of an ordinary dividend of 215 cents per share and a special
dividend of 30 cents per share.
9. Reclassification of discontinued operation
The Trudon Group
On 27 November 2014, the Telkom board approved the disposal of Telkom’s 64.9% shareholding in Trudon to Trumancon. This was part of Telkom’s
strategic imperative to focus on its fixed-line, mobile and Internet-based business.
In September 2015, the material conditions precedent of the proposed sale of Trudon were not met and therefore Trudon is no longer held for sale
and will be consolidated into the results from continuing operations.
The consolidated statement of profit or loss and other comprehensive income and the statement of financial position and statement of cash flows
for 31 March 2015 have been restated to reintegrate the numbers for the Trudon Group. Refer to notes 2.1, 2.2 and 2.3.
10. Capital additions and disposals Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Property, plant and equipment
Additions 1 913 1 517 4 039
Disposals (184) (10) (16)
Intangible assets
Additions 256 298 987
Disposals (1) - -
The capital expenditure for the six months relates to the deployment of the next generation network, mobile cellular services and converged
service offerings. The higher expenditure in this six-month period is largely due to the deployment of fibre and other technologies to support the
growing data services business, Internet capacity growth, links to the mobile cellular operators and access line deployment in selected high-
growth commercial and business areas.
An estimated amount of R161 million (31 March 2015: R193 million) included in inventories will be used for Telkom’s network expansion of which
R135 million (31 March 2015: R137 million) was purchased in the current financial year.
Finance charges of R65 million (31 March 2015: R93 million) were capitalised to property, plant and equipment and intangible assets in the current
financial year.
11. Employee benefits Reviewed Reviewed Audited
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
431 38 452
Telkom Pension Fund asset 28 38 28
Post-retirement medical aid net plan asset 403 - 424
In March 2015 the group recognised a net post-retirement medical aid plan asset which arose from the Post-Retirement Medical Aid annuity policy.
12. Deferred taxation Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Deferred taxation balance is made up as follows: 245 (4) 254
Deferred taxation assets 387 16 270
Deferred taxation liabilities (142) (20) (16)
Deferred tax assets and liabilities increased in the current year due to the consolidation of the BCX Group.
The group did not recognise deferred tax assets of R1 521 million (30 September 2014: R2 105 million; 31 March 2015: R1 699 million) in respect of
temporary differences amounting to R5 432 million (30 September 2014: R7 518 million; 31 March 2015: R6 068 million) that can be carried forward
against future taxable income.
13. Inventories Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Inventories 912 738 638
Gross inventories 1 072 821 730
Write-down of inventories to net realisable value (160) (83) (92)
The increase in inventory since 31 March 2015 is mainly due to an increase in merchandise stock and the consolidation of BCX.
The increase in write-down of inventories is mainly due to the consolidation of BCX and the outsourcing of Telkom warehouses.
14. Other financial assets Reviewed Reviewed Audited
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Non-current other financial assets consist of: - 56 28
- Derivative instruments - 56 28
Cross currency swaps - 56 28
Current portion of other financial assets consists of: 233 634 1 247
- Repurchase agreements - 500 1 101
- Derivative instruments 233 134 146
Forward exchange contracts 150 77 70
Firm commitments 1 1 5
Cross currency swaps 82 56 71
Repurchase agreements
The repurchase agreements were utilised in the repayment of the TL15 bond (refer to note 16).
15. Acquisition of subsidiary Reviewed
Six months
ended
30 September
2015
Rm
Business Connexion Group Limited (BCX)
On 25 August 2015 Telkom acquired the entire issued share capital and the entire issued “A” ordinary
shares of BCX
The total purchase consideration of R2.7 billion was funded through Telkom’s own cash resources.
BCX provides innovative business solutions based on information and communication technology and runs
ICT systems and manages products, services and solutions for a wide range of customers.
The merger will enable Telkom to expand its existing offerings while, at the same time, providing scale
in IT services, which will help reinforce Telkom’s core connectivity business and enhance Telkom’s
convergence strategy.
The acquisition has been accounted for using the acquisition method. The date of acquisition is 31 August
2015 and the condensed consolidated interim financial statements include the BCX results for the one month ended
30 September 2015.
The fair value of the identifiable assets and liabilities at acquisition date were
determined as follows:
Assets
Property, plant and equipment 461
Intangible assets 652
Investment in joint venture and associates and long-term loan receivable 74
Deferred tax 117
Trade and other receivables 1 822
Inventories 227
Income tax receivable 14
Cash and cash equivalents 399
Total assets 3 766
Liabilities
Long-term debt 300
Non-current finance leases 38
Deferred taxation 129
Non-current provisions 5
Trade and other payables 1 192
Current portion of long-term debt 169
Current portion of finance leases 23
Income tax payable 23
Current portion of provision 158
Contingent liability 68
Total liabilities 2 105
Total identifiable net assets at fair value 1 661
Non-controlling interest at proportional share of net assets 126
Goodwill arising on acquisition (provisional) 1 119
Purchase consideration transferred 2 654
Analysis of cash flows at acquisition:
Net cash acquired with the subsidiary (included in cash flows from
investing activities)
Cash paid 2 654
BCX cash at acquisition (399)
Net cash flow on acquisition 2 255
At the date of the acquisition, the fair value of the trade receivables approximated its carrying value.
The gross amount of trade receivables is R1 424 million.
From the date of acquisition, BCX has contributed R491 million of revenue and R12 million to the net profit before tax from the continuing
operations of the group. If the acquisition had taken place at the beginning of the year, Telkom group revenue from continuing operations would
have been R20 226 million and the Telkom group profit from continuing operations for the period would have been R231 million.
The goodwill recognised is primarily attributed to the expected synergies and other benefits from combining the assets and activities of BCX with
those of the group. The goodwill is not deductible for income tax purposes.
Transaction costs of R103 million, which includes issue costs, have been expensed since the inception of the acquisition. These expenses were
recognised in service fees.
Fair values measured on a provisional basis
The fair value of intangible assets and goodwill has been measured on a provisional basis pending the completion of an independent valuation.
If new information is obtained within one year of the acquisition date on facts and circumstances that existed at the acquisition date, the above
amounts will be revised.
16. Net cash and cash equivalents Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Cash disclosed as current assets 706 3 912 3 643
Cash and bank balances 502 161 162
Short-term deposits 204 3 751 3 481
Credit facilities utilised (6) (6) (1)
Net cash and cash equivalents 700 3 906 3 642
The decrease in cash and cash equivalents is mainly due to the acquisition of BCX of R2.7 billion.
17. Financial risk management
Exposure to continuously changing market conditions has made management of financial risk critical for the group. Treasury policies, risk limits
and control procedures are continuously monitored by the board of directors through its audit committee and its risk committee.
17.1 Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group is exposed to liquidity
risk as a result of uncertain cash flows as well as capital commitments of the group.
Liquidity risk is managed by the group's Treasury team in accordance with policies and guidelines formulated by the group's executive committee.
In terms of its borrowing requirements the group ensures that sufficient facilities exist to meet its immediate obligations.
Compared to the 2015 financial year end, there was no material change in the contractual undiscounted cash outflows for financial liabilities.
17.2 Fair value of financial instruments
The carrying amount of financial instruments approximates fair value, with the exception of interest-bearing debt (at amortised cost) which has a
fair value of R4 952 million (30 September 2014: R5 476 million, 31 March 2015: R5 312 million) and a carrying amount of R4 634 million
(30 September 2014: R5 010 million, 31 March 2015: R4 856 million) (refer to note 20).
Valuation techniques and assumptions applied for the purposes of measuring fair value
Type of Fair value at Valuation Significant
financial instrument 30 September 2015 technique inputs
Receivables, R3 704 million Undiscounted Probability of default
bank balances, future estimated
repurchase agreements, cash flows due to
and other liquid funds, short-term maturities
payables and accruals, of these instruments
credit facilities utilised
and shareholders for
dividends
Derivatives R(76) million Discounted cash flows Yield curves, market
interest rate and market
foreign currency rate
Borrowings R4 952 million Discounted cash flows Market interest rate
and market foreign
currency rate
The estimated net fair values as at the reporting date have been determined using available market information and appropriate valuation
methodologies as outlined below. This value is not necessarily indicative of the amounts that the group could realise in the normal course of
business.
Derivatives are recognised at fair value. The fair values of derivatives are determined using quoted prices or, where such prices are not
available, a discounted cash flow analysis is used. These amounts reflect the approximate values of the net derivative position at the reporting
date. The fair values of listed investments are based on quoted market prices.
The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future payments
discounted at market interest rates. As a result they differ from carrying values.
The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their carrying
amount due to the short-term maturities of these instruments.
17.3 Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method.
The different levels have been defined as follows:
a) Quoted prices in active markets for identical assets or liabilities (level 1).
b) Inputs other than quoted prices, that are observable for the asset or liability (level 2).
c) Inputs for the asset or liability that are not based on observable market data (level 3).
The following table presents the fair value of the group's assets and liabilities:
Hierarchy Six months Six months
Levels ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Assets measured at fair value
Investment in cell captive
preference shares* Level 2 2 167 2 887 2 227
Forward exchange contracts Level 2 150 77 70
Firm commitments Level 2 1 1 5
Cross currency swaps Level 2 82 112 99
Liabilities measured at fair value
Interest rate swaps Level 2 - (1) (1)
Firm commitments Level 2 (308) (122) (170)
Forward exchange contracts Level 2 (2) (8) (14)
Liabilities measured at amortised cost
Interest-bearing debt consisting of: (4 952) (5 476) (5 312)
Quoted debt securities Level 1 (2 171) (3 307) (3 355)
Unquoted debt securities Level 2 (2 781) (2 169) (1 957)
*Reclassification to level 2 due to the fact that the fair value of the investment in preference shares is not directly
quoted in an active market.
18. Share capital Reviewed Reviewed Audited
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Authorised and issued share capital is made up as follows:
Authorised
1 000 000 000 ordinary shares of R10 each 10 000 10 000 10 000
Issued and fully paid
520 783 900 (2015: 520 783 900)
ordinary shares of R10 each 5 208 5 208 5 208
6 164 800 (2015: Nil) ordinary shares issued at
no consideration - - -
The following table illustrates the
movement within the number of shares issued:
Number of Number of Number of
shares shares shares
Shares in issue at beginning of year 520 783 900 520 783 900 520 783 900
Issued on 4 June 2015 2 185 452 - -
Issued on 30 June 2015 3 979 348 - -
Shares in issue at end of period 526 948 700 520 783 900 520 783 900
The unissued shares are under the control of the directors until the next annual general meeting.
The directors have been given the authority by the shareholders to buy back Telkom’s own shares
up to a limit of 10% of the current issued share capital.
19. Non-distributable reserves Reviewed Reviewed Audited
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Non-distributable reserves 1 453 2 711 1 507
Cell captive reserve 2 221 2 711 2 282
Shares held by subsidiaries and in escrow (768) - (775)
The group has a cell captive preference share
investment to fund Telkom's post-
retirement medical aid liability.
The fair value gains from the cell captive
are recognised in profit or loss and then
transferred to non-distributable reserves.
The reserve also represents Telkom shares
held by subsidiaries and in escrow, to be
utilised in terms of the Telkom Employee
Share Plan. Telkom previously disclosed this
reserve as treasury shares.
20. Interest-bearing debt Reviewed Reviewed Audited
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Non-current interest-bearing debt 3 084 3 398 3 244
Local debt 2 882 2 601 2 605
Foreign debt 144 199 101
Finance leases 58 598 538
Current portion of interest-bearing debt 1 550 1 612 1 612
Local debt 1 352 1 260 1 260
Foreign debt 129 253 239
Finance leases 69 99 113
The current portion of interest-bearing debt of R1 550 million (nominal as at 30 September 2015) is expected to be repaid from available
operational cash flow and/or the issue of new debt instruments.
Management believes that sufficient funding facilities will be available at the date of repayment/refinancing.
21. Provisions Reviewed Restated Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Non-current portion of provisions 2 096 3 925 1 791
Employee-related 2 061 3 872 1 730
Non-employee-related 35 53 61
Current portion of provisions 1 645 2 086 2 185
Employee-related 1 402 1 652 1 882
Non-employee-related 243 434 303
The increase in the non-current employee-related
provision is due to the reassessment of the
accounting of the Telkom Retirement Fund
(refer to note 2).The decrease in the current
portion of employee-related provisions is due
to the impact of the decreasing headcount on the
annual leave. The decrease in the current portion
of non-employee-related provisions is due to the
settlement of the Pretoria campus site
restoration provision and other related provisions.
22. Trade and other payables Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Trade and other payables 6 509 5 114 5 635
Trade payables 2 634 2 040 2 797
Finance cost accrued 128 184 108
Accruals and other payables 3 747 2 890 2 730
The increase in vendors' balances is mainly due to the payable consolidated as a result of the acquisition of BCX.
Accruals and other payables mainly represent amounts payable for goods received, net of value added tax obligations and licence fees.
Included in the current and prior year balance is the refund from SARS of R854 million. Refer to note 24.
23. Commitments Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Capital commitments authorised 4 601 3 290 5 556
Commitments against authorised capital expenditure 2 707 1 335 1 057
Authorised capital expenditure not yet contracted 1 894 1 955 4 499
Capital expenditure is committed for property, plant and equipment and software included in intangible assets.
Management expects these commitments to be financed from internally generated cash and other borrowings.
24. Contingencies
CONTINGENT LIABILITIES
MATTERS BEFORE ICASA
End-User and Service Charter Regulations
Allegations have been made at ICASA’s Complaints and Compliance Committee (the CCC) regarding Telkom’s alleged non-compliance with the
requirements of the End-User and Service Charter Regulations relating to the clearance of reported faults. The CCC heard the matter and has ruled
that Telkom is not in breach of the Regulations and recommended that ICASA review the Regulations. Telkom has initiated administrative review
proceedings seeking to set aside the applicability of the Regulations since the CCC ruling is not binding on ICASA and the risk remains for
similar referrals. The review application is in process.
HIGH COURT
Neotel/Telkom: CCC
Neotel requested Telkom to provide access to Telkom’s local loop in November 2010. Telkom declined the request and Neotel submitted a formal
complaint to the CCC which made an order directing Telkom to provide Neotel access to Telkom’s local loop. Telkom launched an interim relief
application for an order that the CCC order not be implemented pending a review application in the High Court to review and set aside the CCC
order. The parties have since agreed to a court order in terms of which Telkom withdrew its application for interim relief and ICASA in turn
undertook not to implement the CCC order pending the outcome of Telkom’s application for review. No date has been set down as yet for the hearing
of the review application.
Radio Surveillance Security Services Proprietary Limited (RSSS)
RSSS served two summonses on Telkom for the sums of R216 million and R10 million respectively but Telkom has settled the lesser amount. Telkom is
defending the larger claim and has filed a plea and counterclaim for R22 million. Pleadings have closed and preparation for trial is under way
whilst we are awaiting a date from the North Gauteng High Court.
Phutuma Networks Proprietary Limited (Phutuma)
In August 2009 Phutuma served a summons on Telkom, claiming for damages arising from a tender published by Telkom in November 2007, claiming
damages in the amount of R5.5 billion. The High Court granted absolution from the instance, in Telkom’s favour. The Supreme Court of Appeal (SCA)
had initially dismissed Phutuma’s application for leave to appeal in October 2014. On 4 November 2014, the SCA rescinded its order granted in
October 2014. In early 2015, the SCA referred the appeal back to the full bench of the North Gauteng High Court. The appeal has been set down for
hearing in September 2016.
OTHER
Section 197: Labour Relations Act
As noted in the 2015 consolidated annual financial statements, Telkom invoked a process in terms of Section 197 of the Labour Relations Act, in a
bid to outsource certain services as going concerns. Section 197 (7) states that Telkom and the new employers are jointly and severally liable to
any employee who becomes entitled to receive a payment as a result of the employee’s dismissal for a reason relating to the new employer’s
operational requirements or liquidation or sequestration. Telkom will be held liable for a period of 12 months after the date of transfer, which
may result in an onerous obligation.
CONTINGENT ASSETS
Tax matters
As noted in the 2015 consolidated annual financial statements, the tax treatment of the loss that arose in 2012 and 2014 financial years on the
sale of foreign subsidiaries is based on a specific set of circumstances and a complex legislative environment. A tax refund received during the
2014 financial year, relating to the 2012 sale, is contingent and will only be recognised once the matter has been resolved with SARS. Refer to
note 22.
25. Related parties Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
Details of material transactions and balances
with related parties not disclosed separately in
the condensed consolidated interim financial
statements were as follows:
With shareholders:
Government of South Africa
Related party balances
Finance lease receivable 320 44 366
Trade receivables 459 468 462
Provision for doubtful debt (20) - (16)
Related party transactions
Revenue (1 797) (1 666) (3 750)
Individually significant revenue* (634) (594) (1 331)
City of Cape Town (27) (19) (41)
Department of Correctional Services (38) (36) (82)
Eastern Cape Department of Health** (25) (16) (38)
Department of Justice (50) (47) (109)
South African National Defence Force (33) (30) (69)
South African Police Services (284) (274) (628)
S.I.T.A. Proprietary Limited (98) (102) (205)
Ekurhuleni Metropolitan Council (26) (23) (52)
KZN Ethekwini Municipality (27) (20) (46)
Department of Interior Affairs (26) (27) (61)
Collectively significant revenue* (1 163) (1 072) (2 419)
*The nature of the individually and collectively significant revenue consists mostly of data revenue.
**Individually significant from 30 September 2015.
At 30 September 2015, the Government of South Africa held 39.3% (30 September 2014: 39.8%; 31 March 2015: 39.8%) of Telkom’s shares, and has the
ability to exercise significant influence by virtue of their voting rights at the Annual General Meeting, and the Public Investment Corporation
held 11.9% (30 September 2014: 12.8%; 31 March 2015: 12%) of Telkom’s shares.
Reviewed Reviewed Restated
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2015 2014 2015
Rm Rm Rm
With entities under common control:
Major public entities
Related party balances
Trade receivables 83 62 75
Trade payables (1) (1) (1)
Related party transactions
Revenue (121) (124) (243)
Expenses 120 124 238
Individually significant expenses 115 117 226
South African Post Office 36 41 77
Eskom 79 70 144
South African Broadcasting Corporation - 6 5
Collectively significant expenses 5 7 12
Rent received (35) (26) (53)
Individually significant rent received:
South African Post Office (31) (23) (46)
Collectively significant rent received (4) (3) (7)
Rent paid 30 14 29
Individually significant rent paid:
South African Post Office 26 10 19
Collectively significant rent paid 4 4 10
Key management personnel compensation:
(Including directors' and prescribed officers' emoluments)
Related party transactions
Short-term employee benefits 89 76 218
Post-employment benefits 7 6 11
Termination benefits 3 3 5
Equity compensation benefits 1 13 4
Terms and conditions of transactions with related parties
Outstanding balances at the end of financial periods are unsecured, interest free and settlement occurs in cash. There have been no guarantees
provided or received for related party receivables or payables.
26. Significant events
Issuing of ordinary shares
On 30 June 2015, Telkom issued 3 979 348 ordinary shares for no consideration. The shares will be allotted and issued in terms of the Telkom
Employee Share Plan.
Company Secretary
Ms Xoliswa Mpongoshe Makasi resigned from her position as company secretary of Telkom with effect from 30 June 2015. Ms Ephenia Motlhamme was
appointed as company secretary to the group with effect from 1 August 2015.
Results of the Telkom Annual General Meeting regarding directors’ reappointments
On 26 August 2015, all board members were re-elected as per the Annual General Meeting ordinary resolutions.
MTN and Telkom Radio Access Network (RAN) assets transaction
On 7 March 2014, Telkom signed a heads of agreement in terms of which MTN South Africa would take over the financial and operational
responsibility for the rollout and operation of Telkom’s RAN. The parties wanted reciprocal roaming agreements to enable customers of either party
to roam on each other’s network.
On 17 August 2015, Telkom was informed by the Competition Commission that it had recommended to the Competition Tribunal that the transaction be
prohibited. The parties have agreed not to proceed with the transaction in its current form.
Acquisition of Business Connexion (BCX)
On 22 May 2014, Telkom had announced its firm intention to make an offer to acquire the entire issued share capital of BCX in a bid to improve
performance and restore profitability.
Shareholders of BCX approved the acquisition by Telkom at an Ordinary Scheme Meeting held on 11 August 2014. On 4 August 2015, the Competition
Tribunal approved the transaction between the companies with conditions. All suspensive conditions were met and the purchase consideration was
paid on 25 August 2015.
Voluntary severance packages (VSP) and voluntary early retirement packages (VERP)
Telkom announced on 13 July 2015 that the company had approved the offering of VSP and VERP to non-unionised employees across the company. On
24 July 2015, Telkom announced that it had decided to extend the invitation to all employees, including union members.
The application process was concluded on 17 August 2015. A total of 3 108 employee applications were accepted.
Dividends
The Telkom board declared an ordinary dividend of 215 cents per share and a special dividend of 30 cents per share on 5 June 2015 payable on
20 July 2015 to shareholders registered on 17 July 2015.
Pretoria Head Office
In September 2015, Telkom settled its lease obligation for the buildings with the Telkom Retirement Fund (TRF). Telkom also purchased a previously
leased property from the TRF.
FutureMakers
Telkom has implemented an Enterprise and Supplier Development (ESD) programme. As part of the programme, Telkom, in partnership with Identity
FutureFund Proprietary Limited (IDF), established FutureMakers, in terms of the Department of Trade and Industry’s Codes of Good Practice on Black
Economic Empowerment 2007, as amended (the Codes) and specifically, in terms of the Information and Technology Charter (the ICT Charter). The
partnership and its initiatives is established in line with Telkom’s sustainable strategy of implementing meaningful black economic empowerment
(BEE) initiatives.
FutureMakers has received over 300 applications and is directly engaged in supporting 134 black-owned SMEs, all of which are active in the ICT
sector, through access to finance, innovation hubs and business development services.
Launch of redesigned wholesale division
On 13 October 2015 Telkom launched Openserve, the Group’s redesigned wholesale and networks division. Openserve will be a distinct business unit
within the Telkom group, which is formed as part of the group’s ongoing efforts to strengthen customer focus through a more flexible and agile
operating model. The separation heralds a new era in the Telkom group as it prepares to welcome a more open access environment and all the
opportunities it offers. This move is also in line with Telkom’s turnaround strategy to separate its wholesale and retail divisions to facilitate
greater focus, accountability and most importantly, customer-centricity.
As a key driver of socio-economic development, Openserve will enable more choice, increased innovation and greater service-provider competition.
The result will be increased broadband access. Telkom intends to play a substantial role in lowering the barrier to entry for new players and to
increase the competitiveness of smaller players.
Cell C
On 9 November 2015, Telkom announced that it is in discussion regarding a potential transaction to acquire all of the shares of Cell C.
27. Subsequent events
Other matters
The directors are not aware of any other matter or circumstance since the financial period ended 30 September 2015 and the date of this report,
or otherwise dealt with in the financial statements, which significantly affects the financial position of the group and the results of its
operations.
The information contained in this document is also available
on Telkom’s investor relations website www.telkom.co.za/ir
Telkom SA SOC Ltd
(Registration number 1991/005476/30)
JSE share code: TKG
ISIN: ZAE000044897
Group Secretary
Ephenia Motlhamme
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
PO Box 61051, Marshalltown, 2107
Sponsor
The Standard Bank of South Africa Limited
Standard Bank Centre
30 Baker Street, Rosebank, 2196
Directors
JA Mabuza (Chairman)
SN Maseko (Group Chief Executive Officer)
DJ Fredericks (Chief Financial Officer)
S Botha
G Dempster
T Dingaan
N Kapila
I Kgaboesele
K Kweyama
K Mzondeki
N Ntshingila
F Petersen-Lurie
R Tomlinson
LL Von Zeuner
Date: 16/11/2015 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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